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Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis

57 Pages Posted: 31 Dec 2008 Last revised: 20 Aug 2011

Tomasz Piskorski

Columbia Business School - Finance and Economics

Amit Seru

Stanford University

Vikrant Vig

London Business School

Date Written: April 15, 2010

Abstract

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bankheld loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.

Keywords: Securitization, renegotiation, bargaining, servicing, incentives, subprime, crisis, defaults, mortgages

JEL Classification: G21

Suggested Citation

Piskorski, Tomasz and Seru, Amit and Vig, Vikrant, Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis (April 15, 2010). Chicago Booth School of Business Research Paper No. 09-02; AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1321646 or http://dx.doi.org/10.2139/ssrn.1321646

Tomasz Piskorski (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Amit Seru

Stanford University ( email )

Stanford, CA 94305
United States

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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